ARVIND MURJANI BRANDS PVT.LTD,AHMEDABAD vs. DY. COMMISSIONER OF INCOME TAX,CIRCLE-1, AHMEDABAD

This appeal by the Assessee is preferred against the order of the Ld. CIT(A)-1, Ahmedabad dated 09.03.2015 pertaining to A.Y. 2008-09.

The roots for the levy of penalty lie in the assessment order dated 09.12.2010 framed u/s. 143(3) of the Act. The returned loss of Rs. 1,24,66,539/- was assessed at a total loss of Rs. 1,07,96,129/- after making the following additions/ disallowances:- (i)Employees’ contribution to provident fund Rs. 3,34,815/- (ii) Disallowance of commission u/s. 40(a)(ia) Rs. 2,22,827/- (iii) Capitalization of design expenses Rs. 5,61,441/-. (iv) Provision for cess on Royalty Rs. 5,51,327/-.

Penalty proceedings were separately initiated.

During the course of the penalty proceedings, the assessee was asked to explain why penalty should not be levied for furnishing inaccurate particulars of income. The assessee filed a detailed reply denying its liability towards the levy of penalty u/s. 271(1)(c) of the Act but did not find any favour with the A.O. who proceeded by levying penalty of Rs. 4,49,562/-.

Assessee carried the matter before the ld. CIT(A) but without any success.

Before us, the ld. counsel for the assessee stated that all the details relating to the claim of impugned expenditure were furnished along with the return of income and therefore it cannot be said that the assessee has furnished inaccurate particulars of income.

We have given a thoughtful consideration to the orders of the authorities below. The levy of penalty, after the appellate order has to be considered in the light of the two surviving additions/disallowances namely (a) Capitalization of design expenses Rs. 5,61,441/- and (b) Provision for cess on Royalty Rs. 5,51,327/-, we find that the A.O. had not only accepted the contention of the assessee regarding the capitalization of expenditure but has also allowed depreciation on the same. Therefore, it cannot be said that the assessee did not furnish any explanation. We further find that all the details were furnished in the return of income itself, though inadvertently the amount of Rs. 5,61,441/- remained to be capitalized along with other expenses on construction, furniture and fittings. In our considered opinion, the assessee cannot be held liable for furnishing inaccurate particulars of income on the given set of facts and therefore, not liable for penalty u/s. 271(1)(c) of the Act in respect of the disallowance on account of capitalization of design expenses.

Insofar as the provision for cess on Royalty is concerned, we find that the Tribunal in ITA No. 2382/Ahd/2011 while sustaining the addition of Rs.

A perusal of the factual matrix shows that the assessee was under a bona fide belief that the liability has accrued and accordingly the provision was created for the year under consideration. Realizing that the liability has not accrued in the subsequent year, the provision was reversed and the income was offered for taxation in A.Y. 2009-10. In our considered opinion, this is an inadvertent error and therefore the assessee cannot be visited with penal consequences only because the Assessing Officer has proposed to disallow the expenditure during the assessment proceedings. In our considered opinion, penalty cannot be levied u/s. 271(1)(c) of the Act for filing inaccurate particulars of income on this account also. We, accordingly direct the A.O. to delete the penalty so levied u/s. 271(1)(c) of the Act. Appeal filed by the assessee is allowed.